Moover Construction Enters into a Contract with a Customer to Build

question 28

Essay

Moover Construction enters into a contract with a customer to build a warehouse for $900,000 on June 30, 2017, with a performance bonus of $60,000 if the building is completed by October 31, 2017. The bonus is reduced by
$20,000 each week that completion is delayed. The contract also states that if the warehouse receives a favorable safety inspection rating from government inspectors by November 30, Moover will receive a performance bonus of
$40,000.
Moover commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: In addition, Moover estimates there is a 90% chance that the warehouse will receive a favorable safety inspection rating upon timely completion.
Required:
a. Assume Moover uses the expected value approach. Determine the transaction price for this transaction.
b. Assume Moover uses the most likely amount approach. Determine the transaction price for this transaction.

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Definitions:

Internal Integration

The process of aligning and harmonizing an organization's internal operations and departments to work efficiently together.

Team Boundaries

The defined limits and roles within a team that dictate interactions and responsibilities among its members.

Force

In the context of organizational behavior, it signifies the power or influence exerted to accomplish a goal or mandate change.

External Adaptation

The process through which an organization or individual adjusts to changes in the external environment to survive and thrive.